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Discount calculation

Let's say - hypothetically speaking - a sales man tells you: You will get X% off of the list price!. How is that calculated correctly? I am asking this question in the most unbiased possible way by giving you three examples where I am using $100 as the list price. Is the correct method A or is it B?

Let's say - hypothetically speaking - a sales man tells you: You will get X% off of the list price!. How is that calculated correctly? I am asking this question in the most unbiased possible way by giving you three examples where I am using $100 as the list price. Is the correct method A or is it B?

The easy example is 50% off (i.e., half price). No one would dispute that 50% off $100 means you should pay $50. Using Method A to compute 50% off results in $66.67 (100/1.5), so therefore, Method B is more correct because it is more consistent with how an ordinary consumer would expect the calculation would be performed.

The problem though is the massive variable of "list price". List price isn't set in stone, because it's a guide price like MSRP. But in reality it's whatever the actual retail asking price is going to be. Which I can manipulate to get whatever price/profit I want.

So let's say I have a product. I pay $50 for said product wholesale, and then I choose to mark it up another 50% for a List Price of $100. Not a bad profit margin to double my money, eh? But at that price you as a buyer are not "saving" anything in your mind. So I increase the price to $200, and offer you a 50% discount! You pay me $100 and I still get to make the same profit, but psychologically you think you have gotten a good deal because you "saved" $100 from my *generous* 50% discount off of the price. Did you really save anything from before? No. Do you feel good about this purchase though? Yes. Shucks! Ya got one over on me. Better tell everyone you know to come take advantage of me before I wise-up and change my mind. It gets even worse when I haggle.

Even so, the majority of profit "lost" on a discount also gets made up elsewhere. Could be on a warranty sale for the product, or even just the accessories. Which is Home Depot's sales model. Sell the power tools cheap to even take a loss on them, but make it all up on the outrageous prices for drill bits, saw blades, and other accessories.

To be more clear, if a part is $100,. and we remove the 21% vat the sum is like this $100,- you split it 121% the sum is $82,64 and not $100,- minus $21,- =$79,-
$79,- + 21%vat is $95,59
$82,64 + 21% make $100,-

I hope that is is more clear for you.

Regards Ed Uding
Delorean Europe

Originally Posted by Henrik

Let's say - hypothetically speaking - a sales man tells you: You will get X% off of the list price!. How is that calculated correctly? I am asking this question in the most unbiased possible way by giving you three examples where I am using $100 as the list price. Is the correct method A or is it B?

Meanwhile, please take two minutes of your time and look at the first posting in this thread and then post your answer: Do you agree with calculation Method A or do you agree with calculation Method B?

This isn't a cut and dry question without knowing the context. It depends on exactly what the circumstance is. If something is $100 and you say the price is 30% off, then of course its just .7*100=$70. This is answer B.

If this is related to the the removal of a tax though (Eds website for instance), it is NOT simply 30% off of the $100, because the price is listed including the 30% tax. For this situation, it is answer A.

The original tax of 30% is calculated based on the original price, (not the price after tax of $100), which when added together equals $100. If the price is $100 after a 30% tax has been applied, the original price was $76.9 and a 30% tax on it is .3*76.92=$23.08. When added together, $76.92+$23.08=$100. If I now said, you wont get charged the 30% tax, you dont simply get 30% off of the $100 price tag because that would mean the new price was $70. Obviously, you simply get charged the tax free price of $76.92. To calculate this, its like Ed said, you divide $100/1.3=$76.92. This gives you the price that the item cost, before a 30% tax was assessed.

If you say that the tax on an item is 100% then you're essentially saying that the tax is the same as the price. If the price is $100, the tax is also $100, meaning you're going to end up paying $200. But if you say, eh, I wont charge you the 100% tax, you dont now get if for free, you simply dont have to pay that second $100. Now the price is back down to the original $100. (This is essentially the third example)

Time to eat crow and an apology

• “List price less VAT”: This is what Ed should have stated. Method A applies.
• “21% off the list price”: This is what Ed stated to me. Method B applies.

In the strictest of definitions and without putting this into context I stuck to the latter, Method B, because that was the agreement. After all, price was an important criteria. However…. of course I realize that all Ed is trying to accomplish is to deduct the VAT portion, i.e. making Method A the correct method in this case. Maybe a mean streak crawled up my butt last week, not sure.